Question

​(Determining relevant cash​ flows)  Fruity Stones is considering introducing a variation of its current breakfast​ cereal, Jolt​ n' Stones. This new cereal will be similar to the old with the exception that it will contain more sugar in the form of small pebbles. The new cereal will be called Stones​ n' Stuff. It is estimated that the sales for the new cereal will be ​$118 ​million; however, 35 percent of those sales will be from former Fruity Stones customers who have switched to Stones​ n' Stuff. These former customers will be lost regardless of whether the new product is offered since this is the amount of sales the firm expects to lose to a competitor product that is going to be introduced at about the same time. What is the relevant sales level to consider when deciding whether or not to introduce Stones​ n' Stuff?

Answer 1

Relevant Sales are the incremental sales from the new product

Since the old customers will be lost to the competitor of the new product is not introduced, It becomes a part of relevant sales.

Hence, relevant sales level to consider when deciding whether or not to introduce Stones​ n' Stuff = $118 million